Strategic Planning in the Small Business

Unit 2

HO 2-4 (continued)

nesses

are fairly sell-contained

and self-supporting,

thereb'

exhibiting

little dependency for raw

materials whereas others*

are almost totally

dependent on their

suppliers. Vulnerability

refers to

the extent to which the business

would be affected

by

breakdowns

in the supply network. The

vulnerability of a busi­

ness is determined

by the number of competing

suppliers who

could provide input

items for the business,

and the track record

of these suppliers.

In general, if fewer

sources of supply exist,

the

business is more vulnerable

to the arbitrary actions

of the

suppliers.

Sometimes the dependency

and vulnerability issues

surface

over

key customers rather

then key suppliers. If, for

example,

a small business is

a captive supplier of a larger

firm-that is,

it sells nearly all

of its product to one

customer-then it is

extremely vulnerable when

the larger firm encounters

a strike

or significant downturn.

In most cases the

larger firm survives

the trauma,

but the smaller, dependent

firm cannot.

In consi iering

high dependency and/or

vulnerability, it is

critical

to be dware of forces

that may affect the availability

of

raw materials

as well as their price

and delivery schedule.

For

example,

a small company sold

fine chocolate candies.

Through

astute marketing

to local businesses, restaurants,

and hotels

they had established an

e .tensive demand for the

candies.

The profitability

of the firm, and

indeed its survival, was

threatened'by the fact

that the firm had entered

into an exclu­

sive contract

with a single supplier.

This supplier was a

small,

fledgling operation

located nearly

500 miles from the store.

It

was one of the

few suppliers that took

an interest in the com­

pany.

Unfortunately, as the

candy store's reputation

grew and

demand expanded,

its supplier was

nable to provide the

needed

candies. Extensive

backlogs existed and customers,

quite

understandably, became

frustrated. Before the

candy store was

able

to sever its relationship

with its supplier and search

out

larger,

more consistent sources,

customer confidence

had eroded

to the point

that the business was doomed.

Again, careful anal­

ysis of

the supplier, its capacity

and ability to deliver,

coupled

with the firms

own projections of demand,

should have enabled

PartOne The

Analysis Phase

177

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